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Release No: 666-94November 29, 1994

LONGUEMARE SPEAKS TO DEFENSE MANUFACTURING CONFERENCE 94

Principal Deputy Undersecretary of Defense for Acquisition and Technology R. Noel Longuemare focused on improving defense manufacturing in a speech today to government and industry attendees at the Defense Manufacturing Conference 94 in Phoenix, Ariz.

"The way we in DoD approach defense manufacturing is a big part of the way we are re-engineering the way we do business with business at the Pentagon," Longuemare emphasized. "For the first time, we are seriously putting technology to work on a broad scale cutting costs and improving quality."

He noted, "We're using the word `manufacturing' in a different way. This is manufacturing with a capital M. It means all the processes, technical and business, used by a firm or group of firms to develop and produce a product, not just factory floor assembly. Its essence is integrating design and manufacturing."

Longuemare welcomed the Conference as a means to involve the Defense acquisition workforce and industry, saying, "We have a number of challenges ahead, but many of the specific actions needed are now clear, and we are taking some aggressive steps to implement them. If the steps we are taking can institutionalize the spirit of change, we will have gone a long way toward providing for the future defense of our nation."

A complete text of Longuemare's speech is attached.

Remarks prepared for delivery by

Principal Deputy Undersecretary of Defense for Acquisition and Technology

R. Noel Longuemare

At the Defense Manufacturing Conference 94

Phoenix, Arizona

Tuesday, November 29, 1994

Introduction

I'm very pleased to be the OSD speaker at this year's Defense Manufacturing Conference. Your theme of challenges for the 21st Century in defense manufacturing technology is exactly the right context for this discussion.

The way we in DoD approach defense manufacturing is a big part of the way we are re-engineering the way we do business with business at the Pentagon.

We usually talk about this as acquisition reform. But it's a much bigger topic and one of vital importance. I believe our effort to re-engineer the way we do business will have more to do with our long-term ability to defend this nation than any number of the individual systems decisions we have on our plates.

Topics

My particular focus today will -- of course -- be improvement in defense manufacturing, but I want to set the stage before getting to the specifics.

- First, I'll talk about why any remaining skepticism about our new efforts is misplaced and I'll chart the overall architecture of our re-engineering effort.

- Next, I'd like to talk about three areas of opportunity for dealing with our reduced budget, and

- Finally I will address what DoD is doing to promote improvement in defense manufacturing.

Skepticism

First, the skepticism. Frankly, when we started there was much to be skeptical about. The banner of acquisition reform has been waved for years with little success. What is different now? Two things are different -- external change and internal commitment.

External changes include the end of the Cold War, the dissolution of the Soviet Union, a vast shift in the threats we face, a substantial reduction in resources and force structure, and, for

good measure, a shift in the location of many cutting edge technologies from defense-unique industry to commercial industry -- a commercial industry, I should point out, that is increasingly networked and global in extent. Clearly, the Department cannot do business as usual in the face of external changes this fundamental.

Internal commitment. Our Secretary and our Deputy Secretary are personally and fully committed to changing our acquisition process. Deputy Secretary Deutch tells this story about himself and Dr. Perry:

It was January 8, 1993, and they both happened to be in Albuquerque. Les Aspin, then secretary designee, called them about joining the department. Later when Perry and Deutch talked about re-joining government, the first topic that came to mind was a chance to fix acquisition.

Overall Strategy

So we have the circumstances and the personalities to bring about great change. What are we doing about it?

We have in place today an integrated strategy, an architecture for change, if you will, that will re-engineer the way we do business. It is a comprehensive, coherent approach to these changing times, and I believe it is going to bring to defense the kind of big results that the best commercial firms have realized over the past 10 years.

One major element of that strategy is, of course, acquisition reform. We have made significant progress here. The President recently signed the Federal Acquisition Streamlining Act that takes great strides, including raising the threshold for simplified acquisition. It is not immodest to say this depended a great deal on the good work done here in the Department.

You'll recall, as well, that we've reversed the burden on mil specs -- an enormous change. Use of military unique specifications now requires strong justification, rather than the other way around. This is a large and difficult transition, but we are determined to make it work. Much remains to be done as DoD and industry find new ways to operate, but we are making real progress.

Industrial Base Considerations

The second major element of our strategy concerns the industrial base. We are doing innovative things here because we have to.

Beyond a small number of obvious candidates -- nuclear submarines, main battle tanks -- the maintenance of a defense-unique industrial base is not an option.

We are concentrating on such things as dual use technologies and products that can give us a double payoff with both military and civilian applications. They aid the overall economy, while we reap the benefits of economies of scale and access to cutting edge technologies in the commercial sector. As in acquisition reform, exciting things are happening here.

Modern Manufacturing

The third and final major element of our strategy involves modern manufacturing. For the first time, we are seriously putting technology to work on a broad scale cutting costs and improving quality.

This is where we link our science and technology programs to the affordability needs of our acquisition programs, where we couple technology with the advanced industrial practices proving so effective in our leading commercial firms. This is the area most people have heard the least about, but in terms of savings and quality, I believe it is as promising as anything we are doing.

Three Areas of Opportunity

We're all aware that our procurement budget is down over 60 percent, yet the demands on our armed forces--although different than those of the Cold War--remain quite challenging.

In my time at the Pentagon I have come to realize that there are three areas of opportunity for dealing with this dilemma:

The first is elimination of non-value added functions. This is where most of our Acquisition Reform energy has been focused---the Section 800 Panel recommendations, military specifications reform, changes to the FARs and DARs, the Acquisition Reform Act of 1994 and the like.

Coopers and Librand have just completed a study showing that a cost penalty of from 15 to 20 percent is attributable to these relative to commercial industry.

The second area is one I refer to as enlightened program management. This has to do with a renewed emphasis on cost ---I call it "Cost as an Independent Variable". Conservatively, I believe we can save another 20 percent or more here.

The third area has to do with maximum use of Joint Service programs, cross-servicing, and multi-Service usage and support. I'll let you put your own factor on this, but I believe on average there is at least 15 percent to be saved here, and possibly much more.

So if we add all this up, we're talking of factors of 50 percent or greater reduction in the cost of products the DoD buys! Imagine for a moment what that will allow us to do in coping with our budget reduction!

Defense Manufacturing Council

Today I want to concentrate on modern manufacturing, which is an enabler for all three of these initiatives. In particular I want to talk about the Defense Manufacturing Council which I initiated earlier this year to coordinate the modern manufacturing effort and give it high-level, sustained attention.

The council has broad representation from throughout the Department. I chair both the Council and its Executive Committee, which is composed of the Service Acquisition Executives and others.

The core objective of the council is to obtain cost reduction and shorten cycle times for both emerging and ongoing programs by encouraging modern manufacturing processes, methods and systems. In other words, cost reduction through modern manufacturing on a par with the best commercial firms.

Big M Concept

Another point of background. We're using the word "Manufacturing" in a different way. This is manufacturing with a capital M. It means all the processes, technical and business, used by a firm or group of firms to develop and produce a product, not just factory floor assembly. Its essence is integrating design and manufacturing.

Integrated Product/Process Development (or IPPD) is a fundamental part of this. Instead of engineering "throwing designs over the wall" to the manufacturing department, an integrated team approach is involved supported by new computer-aided engineering and manufacturing technology.

Lean manufacturing techniques are applied to further reduce costs and cut defects. The result is a better, less expensive product sooner.

This, plainly, is a revolution and we know those don't come easily. It isn't likely to come at all to the defense industry unless we at the Department act. That's because the defense industry mirrors its customer. Big changes in the defense industry require big changes in the way the department does business.

Put another way, defense industry change requires customer leadership. If we are to reap the benefits of this manufacturing revolution DoD must take action to provide that leadership -- and we are!

Oversight Responsibility

I should note here explicitly that government will never have the freedom that private industry has to introduce such things as IPPD and truly integrated customer-supplier teams.

There are oversight and set aside requirements and other limitations established as a matter of national policy or congressional mandate, and these are perfectly appropriate choices for policy makers.

But within these constraints, there is a great deal we can and must do! We're looking to Integrated Product and Process Development to achieve producible designs to meet cost targets, to give us near zero-defect manufacturing and eliminate or reduce things that don't add value to the product.

Cost as an Independent Variable

A word about cost targets. When you make cost an independent variable -- that is, when you set a cost target and then build the best product for that cost -- you often pay little or no penalty in performance. At the same time, cost reductions in the neighborhood of 20 to 30 percent or more are not at all unreasonable. These are the kind of payoffs commercial industry has seen. We're looking for similar results.

To treat cost as an independent variable obviously requires trades to be made in other areas---specifically in requirements. To accomplish this, we must revamp the overall process currently in use at the Pentagon and in the Services. In short, we want to apply an IPP or IPT approach to the internal DoD decision process.

Defense Manufacturing Council Offsite Meeting

Two weekends ago we held the first Defense Manufacturing Council offsite meeting to put together a game plan on how to address some of these issues. Some 60 people were in attendance, including my boss Paul Kaminski, Flag level representatives from each of the Services and OSD, and selected PEOs from each service. We addressed four topics:

Cost as an Independent Variable

Product Maturation --how to ensure producibility at the front end of programs

Incentives--how to incentivise Industry and Government to make the needed changes, and finally---

Pilot Programs as agents of change

I believe the meeting was unusually successful. What emerged was agreement on five "Paradigm Shifts" which must be implemented which I'd like to share with you:

Some Paradigm Shifts

A shift from regulation/enforcement to incentives should be applied across the board.

A shift from product focus to greater emphasis on front-end manufacturing technology, manufacturability and supportability.

A shift from Pentagon decisions made in organizational isolation to integrated team action through an institutionalized IPT approach.

A shift from performance focus to a balanced approach achieved through trades using "cost of performance" as a primary decision parameter.

A rapid shift from the classic acquisition approach to tailored, innovative, streamlined programs using "pilot-like" mechanisms as agents of change.

Implementation

We are now preparing detailed implementation plans on each of these, and are to review these at the next DMC meeting in December.

We're taking action in a number of ways to achieve these objectives. First, as we've been discussing, we are changing the way we do business. Dr. Perry has made clear he is willing to waive policy, directives, instructions and publications in order to promote streamlining.

On every new program or update that comes up for a decision we are taking active steps to ensure that maximum advantage is taken of the flexibility we have to tailor acquisition strategies to specific program needs. And we're pushing the use of Integrated Product Teams to allow greater responsibility and authority to be placed in the hands our PEO's and project managers.

Second, we're taking action to make sure the our acquisition personnel have both the experience and the education to handle these new responsibilities. We're conducting periodic PEO conferences, we're expanding and enhancing the Defense Systems Management College curriculum, we're requiring major program PEOs and project managers to be senior-level certified as acquisition professionals, and we're implementing career development and rotation programs for both line and staff functions.

Specifically in the area of big M manufacturing, we are shifting priorities to place more emphasis on producibility at the front end of programs, and are revamping our procedures to eliminate non-value added functions in favor of advanced process control and intelligent use of metrics.

We have just "stood up" a new Systems Engineering group under Mark Schaffer to help accelerate these actions.

Developing Lasting Ownership

One of the greatest impediments to success is a lack of time. Current leadership has an in-job life expectancy much shorter than the time constant of the system to be changed.

Probably the single most important requirement is to institutionalize the spirit of change throughout the permanent work force, especially down at the action level. Because of this, our game plan is aimed at pushing these changes down to the lowest levels of the organization as rapidly as possible. This is one of the primary reasons for forming the Defense Manufacturing Council---to accelerate this process.

It goes without saying that industry has a major role to play, and that is one of the reasons conferences such as this are so important.

Summary

We have a number of challenges ahead, but many of the specific actions needed are now clear, and we are taking some aggressive steps to implement them. If the steps we are taking can institutionalize the spirit of change, we will have gone a long way toward providing for the future defense of our nation.

We obviously need your help to make this happen, and conferences such as this one are a major contribution toward achieving the objectives we are all striving for.

Again, I appreciate the opportunity to come here today and share some of our goals and aims with you.